Stocks for the Long Run 5/E by Siegel, Jeremy J. -- Read -- Imperial Library of Trantor

Index

Cover Stocks for the Long Run: The Definitive Guide to Financial Market Returns & Long-Term Investment Strategies Copyright Page Contents Foreword Preface Acknowledgments PART I STOCK RETURNS: PAST, PRESENT, AND FUTURE

Chapter 1 The Case for Equity Historical Facts and Media Fiction

“Everybody Ought to Be Rich"

Asset Returns Since 1802

Historical Perspectives on Stocks as Investments

The Influence of Smith’s Work Common Stock Theory of Investment The Market Peak Irving Fisher’s “Permanently High Plateau”

A Radical Shift in Sentiment The Postcrash View of Stock Returns The Great Bull Market of 1982-2000

Warnings of Overvaluation The Late Stage of the Great Bull Market, 1997-2000 The Top of the Market The Tech Bubble Bursts

Rumblings of the Financial Crisis

Beginning of the End for Lehman Brothers

Chapter 2 The Great Financial Crisis of 2008 Its Origins, Impact, and Legacy

The Week That Rocked World Markets Could the Great Depression Happen Again? The Cause of the Financial Crisis

The Great Moderation Subprime Mortgages The Crucial Rating Mistake The Real Estate Bubble Regulatory Failure Overleverage by Financial Institutions in Risky Assets

The Role of the Federal Reserve in Mitigating the Crisis

The Lender of Last Resort Springs to Action Should Lehman Brothers Have Been Saved? Reflections on the Crisis

Chapter 3 The Markets, the Economy, and Government Policy in the Wake of the Crisis

Avoiding Deflation Reaction of the Financial Markets to the Financial Crisis

Stocks Real Estate Treasury Bond Markets The LIBOR Market Commodity Markets Foreign Currency Markets Impact of the Financial Crisis on Asset Returns and Correlations Decreased Correlations Legislative Fallout from the Financial Crisis Concluding Comments

Chapter 4 The Entitlement Crisis Will the Age Wave Drown the Stock Market?

The Realities We Face The Age Wave Rising Life Expectancy Falling Retirement Age The Retirement Age Must Rise World Demographics and the Age Wave Fundamental Question Emerging Economies Can Fill the Gap Can Productivity Growth Keep Pace? Conclusion

PART II THE VERDICT OF HISTORY

Chapter 5 Stock and Bond Returns Since 1802

Financial Market Data from 1802 to the Present Total Asset Returns The Long-Term Performance of Bonds Gold, the Dollar, and Inflation Total Real Returns Real Returns on Fixed-Income Assets The Continuing Decline in Fixed-Income Returns The Equity Premium Worldwide Equity and Bond Returns Conclusion: Stocks for the Long Run Appendix 1: Stocks from 1802 to 1870

Chapter 6 Risk, Return, and Portfolio Allocation Why Stocks Are Less Risky Than Bonds in the Long Run

Measuring Risk and Return Risk and Holding Period Standard Measures of Risk Varying Correlation Between Stock and Bond Returns Efficient Frontiers Conclusion

Chapter 7 Stock Indexes Proxies for the Market

Market Averages The Dow Jones Averages

Computation of the Dow Index Long-Term Trends in the Dow Jones Industrial Average Beware the Use of Trendlines to Predict Future Returns

Value-Weighted Indexes

Standard & Poor’s Index Nasdaq Index Other Stock Indexes: The Center for Research in Security Prices

Return Biases in Stock Indexes Appendix: What Happened to the Original 12 Dow Industrials?

Chapter 8 The S&P 500 Index More Than a Half Century of U.S. Corporate History

Sector Rotation in the S&P 500 Index Top-Performing Firms How Bad News for the Firm Becomes Good News for Investors Top-Performing Survivor Firms Other Firms That Turned Golden Outperformance of Original S&P 500 Firms Conclusion

Chapter 9 The Impact of Taxes on Stock and Bond Returns Stocks Have the Edge

Historical Taxes on Income and Capital Gains Before- and After-Tax Rates of Return The Benefits of Deferring Capital Gains Taxes Inflation and the Capital Gains Tax Increasingly Favorable Tax Factors for Equities Stocks or Bonds in Tax-Deferred Accounts? Conclusion Appendix: History of the Tax Code

Chapter 10 Sources of Shareholder Value Earnings and Dividends

Discounted Cash Flows Sources of Shareholder Value Historical Data on Dividends and Earnings Growth

The Gordon Dividend Growth Model of Stock Valuation Discount Dividends, Not Earnings

Earnings Concepts

Earnings Reporting Methods Operating Earnings and NIPA Profits The Quarterly Earnings Report

Conclusion

Chapter 11 Yardsticks to Value the Stock Market

An Evil Omen Returns Historical Yardsticks for Valuing the Market Price/Earnings Ratio and the Earnings Yield

The Aggregation Bias The Earnings Yield The CAPE Ratio The Fed Model, Earnings Yields, and Bond Yields Corporate Profits and GDP Book Value, Market Value, and Tobin’s Q Profit Margins

Factors That May Raise Future Valuation Ratios

A Fall in Transaction Costs Lower Real Returns on Fixed-Income Assets The Equity Risk Premium

Conclusion

Chapter 12 Outperforming the Market The Importance of Size, Dividend Yields, and Price/Earnings Ratios

Stocks That Outperform the Market

What Determines a Stock’s Return?

Small- and Large-Cap Stocks

Trends in Small-Cap Stock Returns

Valuation: “Value” Stocks Offer Higher Returns Than “Growth” Stocks Dividend Yields

Other Dividend-Yield Strategies

Earnings Ratios Price/Book Ratios Combining Size and Valuation Criteria Initial Public Offerings: The Disappointing Overall Returns on New Small-Cap Growth Companies The Nature of Growth and Value Stocks Explanations of Size and Valuation Effects

The Noisy Market Hypothesis Liquidity Investing

Conclusion

Chapter 13 Global Investing

Foreign Investing and Economic Growth Diversification in World Markets

International Stock Returns The Japanese Market Bubble

Stock Risks

Should You Hedge Foreign Exchange Risk? Diversification: Sector or Country? Sector Allocation Around the World Private and Public Capital

Conclusion

PART III HOW THE ECONOMIC ENVIRONMENT IMPACTS STOCKS

Chapter 14 Gold, Monetary Policy, and Inflation

Money and Prices The Gold Standard The Establishment of the Federal Reserve The Fall of the Gold Standard Postdevaluation Monetary Policy Postgold Monetary Policy The Federal Reserve and Money Creation How the Fed’s Actions Affect Interest Rates Stock Prices and Central Bank Policy Stocks as Hedges Against Inflation Why Stocks Fail as a Short-Term Inflation Hedge

Higher Interest Rates Nonneutral Inflation: Supply-Side Effects Taxes on Corporate Earnings Inflationary Biases in Interest Costs Capital Gains Taxes

Conclusion

Chapter 15 Stocks and the Business Cycle

Who Calls the Business Cycle? Stock Returns Around Business Cycle Turning Points Gains Through Timing the Business Cycle How Hard Is It to Predict the Business Cycle? Conclusion

Chapter 16 When World Events Impact Financial Markets

What Moves the Market? Uncertainty and the Market Democrats and Republicans Stocks and War

Markets During the World Wars Post-1945 Conflicts

Conclusion

Chapter 17 Stocks, Bonds, and the Flow of Economic Data

Economic Data and the Market Principles of Market Reaction Information Content of Data Releases Economic Growth and Stock Prices The Employment Report The Cycle of Announcements Inflation Reports

Core Inflation Employment Costs

Impact on Financial Markets Central Bank Policy Conclusion

PART IV STOCK FLUCTUATIONS IN THE SHORT RUN

Chapter 18 Exchange-Traded Funds, Stock Index Futures, and Options

Exchange-Traded Funds Stock Index Futures Basics of the Futures Markets Index Arbitrage Predicting the New York Open with Globex Trading Double and Triple Witching Margin and Leverage Tax Advantages of ETFS and Futures Where to Put Your Indexed Investments: ETFS, Futures, or Index Mutual Funds? Index Options

Buying Index Options Selling Index Options

Importance of Indexed Products

Chapter 19 Market Volatility

The Stock Market Crash of October 1987 The Causes of the October 1987 Crash

Exchange Rate Policies The Futures Market

Circuit Breakers Flash Crash—May 6, 2010 The Nature of Market Volatility Historical Trends of Stock Volatility The Volatility Index The Distribution of Large Daily Changes The Economics of Market Volatility The Significance of Market Volatility

Chapter 20 Technical Analysis and Investing with the Trend

The Nature of Technical Analysis Charles Dow, Technical Analyst The Randomness of Stock Prices Simulations of Random Stock Prices Trending Markets and Price Reversals Moving Averages

Testing the Dow Jones Moving-Average Strategy Back-Testing the 200-Day Moving Average Avoiding Major Bear Markets Distribution of Gains and Losses

Momentum Investing Conclusion

Chapter 21 Calendar Anomalies

Seasonal Anomalies The January Effect

Causes of the January Effect The January Effect Weakened in Recent Years

Large Stock Monthly Returns The September Effect Other Seasonal Returns Day-of-the-Week Effects What’s an Investor to Do?

Chapter 22 Behavioral Finance and the Psychology of Investing

The Technology Bubble, 1999 to 2001 Behavioral Finance

Fads, Social Dynamics, and Stock Bubbles Excessive Trading, Overconfidence, and the Representative Bias Prospect Theory, Loss Aversion, and the Decision to Hold on to Losing Trades Rules for Avoiding Behavioral Traps Myopic Loss Aversion, Portfolio Monitoring, and the Equity Risk Premium Contrarian Investing and Investor Sentiment: Strategies to Enhance Portfolio Returns Out-of-Favor Stocks and the Dow 10 Strategy

PART V BUILDING WEALTH THROUGH STOCKS

Chapter 23 Fund Performance, Indexing, and Beating the Market

The Performance of Equity Mutual Funds Finding Skilled Money Managers

Persistence of Superior Returns

Reasons for Underperformance of Managed Money A Little Learning Is a Dangerous Thing Profiting from Informed Trading How Costs Affect Returns The Increased Popularity of Passive Investing The Pitfalls of Capitalization-Weighted Indexing Fundamentally Weighted Versus Capitalization-Weighted Indexation The History of Fundamentally Weighted Indexation Conclusion

Chapter 24 Structuring a Portfolio for Long-Term Growth

Practical Aspects of Investing Guides to Successful Investing Implementing the Plan and the Role of an Investment Advisor Concluding Comment

Notes Index

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